Tom Nash
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The NEW and IMPROVED 3 Fund Portfolio Strategy - Tom's Academy Exclusive
🕑 Added 2023-07-02 13:44:29 +0000 UTCDear Academy members, in one of my previous posts I spoke about the three-fund portfolio strategy. An investment methodology that provides diversification and balance within a portfolio, with little time and effort.
The idea is simply to allocate your portfolio (in part or in whole) across three asset classes: U.S. stocks ETF, international stocks ETF (excluding U.S.) and U.S. bonds.
In my previous article I made the argument that this strategy provides investors with proven results, simplicity, low costs, and zero anxiety.
Today we will explore an upgraded approach to the three fund portfolio that offers better returns, without taking on more risk.
The foundation of the old school three fund portfolio is a heavy allocation to U.S. stocks, along with a portion to international stocks, and a component of bonds.
Once every few years, as you get older, you adjust the allocation by increasing bond holdings but overall, the portfolio doesn't require much maintenance or attention.
The main benefit of this strategy is obviously extensive diversification with a peace of mind. You get exposure to the U.S. market as well as the non U.S. markets and bond, while not having to actively picks stocks and manage a portfolio.
However, having said that, there might be an even better way.
Over the 2 decades that have passed since the three fund portfolio strategy was created in 1999, the vast majority of American companies that comprise the S&P500 have gone pretty much multinational. Companies like Apple, Google and Amazon are global multinational corporations with exposure to pretty much the entire global market.
So given that reality, is there really a need for a non US stocks ETF in a three fund portfolio any more?
An argument can be made that focusing primarily on U.S. companies, instead of a mixture of U.S. and Non U.S. funds, can provide the same level of diversification, but with a greater potential of profits.
So how does this new and upgraded Three Fund Portfolio works?
First of all, you still maintain the core concept of the three-fund strategy but with a twist, and this is how you do it:
1. Broad Conservative U.S. Index - S&P500 is my choice (VOO) personally but there are other options as well that can fit here.
2. (Previously - NON U.S. Stocks ETF) - New Approach - High Growth U.S. Index - NASDAQ100 (QQQM) is my choice here, but again there are other options with a similar profile for you to choose from.
3. A total U.S. bond market index fund, consisting of bonds with varying maturities. Schwab U.S. Aggregate Bond Index Fund (SWAGX) can be a good option here, but again, there are other options for you to choose.
All we did is swap out international stocks with high growth U.S. stocks, and by doing so we added more potential to this portfolio, with pretty much the same level of risk.
From that point on, you buy and hold it forever, and every few years you adjust for a higher percentage of bonds, as you get older.
For investors 60 and above this would be a good setup: 60% in a Bond Index Fund, 30% in a U.S. Broad Stocks ETF, and 10% in a U.S. Growth ETF.
For investors 50 to 60, this would be a good setup: 50% in a Bond Index Fund, 25% in a U.S. Broad Stocks ETF, and 25% in a U.S. Growth ETF.
For investors 40 to 50, this would be a good setup: 20% in a Bond Index Fund, 60% in a U.S. Broad Stocks ETF, and 20% in a U.S. Growth ETF.
For investors 30 to 40, this would be a good setup: 20% in a Bond Index Fund, 40% in a U.S. Broad Stocks ETF, and 40% in a U.S. Growth ETF.
For investors under 30, this would be a good setup: 10% in a Bond Index Fund, 45% in a U.S. Broad Stocks ETF, and 45% in a U.S. Growth ETF.
You can use that for your entire portfolio, or parts of it, the decision of how much this strategy gets from your entire investment play money, is your and your alone.
Same goes for the age based allocations, as those are very personal and can be quite different for each and every one of you. What you see above is just an example and not a hard line rule you have to follow.
Let me know if you have any questions.
Tom
Comments
Bryan Wheeler
Justin, for what it is worth, I have had another local certified Financial Planner (wasn't selling anything and I was clear upfront that I was NOT going to leave my current CFP) to look at my books and give advice, (he didn't have anything new to offer but I felt reassured and subsequently invested in a handful of stocks he recommended that were "destroyed" durning the covid downturn, like Royal Caribbean, which usually trades $90-$120 but during that downturn it went into the $30 range, I did well), currently I am meeting with my local Credit Union wealth management team (under the same conditions) to have them take a look too. Both were free to me and have provided benefit to me and my fam. Rules/Laws are constantly changing, I think its wise to have another set of eyes on what I am doing.
JB
Tom - New “old” member here. This alone has made the price of admission worth it. Thank you. I’m wondering, obviously this is “not” financial advise but I’d like to know if you actually DO give financial advice? Like a deep dive into someone’s current financials with a build out strategy? If not, where do you recommend that I can get advice and strategy only without buying the products every financial planner is trying to sell me? Thanks again!
Generico Fakero
I’ll take a look
Zach
Tom I responded to your post in discord.
Generico Fakero
👏
Melvyn Douglas
Thursday Zoom was great, and I'm replaying it to the full understanding of what you're relaying to us.
Generico Fakero
Hey Mel, nice to see you here. How was the Thursday zoom call for you?
Melvyn Douglas
Good morning Tom, I would have to go for the 60 and above.
